Some Minnesota taxpayers, planning to get a jump on those irksome taxes, filed early, and they may have inadvertently filed with an error that benefits them if undetected. The state, though, is on the trail and hopes to catch the errors.
These are not slam-the-jail-door errors, mind you. It’s just that the Legislature changed a few of the tax rules late in the game, setting up some of those early filers for possible errors, specifically teachers and those who claim tuition deductions on their federal tax returns.
In the past, teachers could claim deductions on federal and state returns of up to $250 for classroom materials they bought with their own money. As many as 60,000 teacher-filers were eligible, according to Carol Wald, the Minnesota Revenue Department’s assistant commissioner for income taxes. Taxpayers also could claim as much as $4,000 for college tuition and fees on federal and state returns. About 100,000 Minnesota filers take that deduction, according to Wald.
Those two deductions are worth about $20 million annually for taxpayers or for the state, depending on the direction from which you view it. The state generally has conformed to the federal return since 1987, keying off the federal taxable income figure, a widely applauded effort to simplify the filing exercise. “I think we improved the system when we did that,” said Dan Salomone, deputy commissioner of the Minnesota Revenue Department.
But when the feds change the tax rules, which it does almost annually, the Legislature has to decide if it will follow suit. (The Revenue Department explains the changes on its website.) When budget times for the state are flush, it normally does. In recent years, Congress has been increasing tax breaks.
The state is required to balance its budget and has to measure the revenue impact of following the tax footsteps of the federal government. “It’s rarely a windfall for the state,” said Salomone. “Generally, in recent years, the federal government has been reducing its tax base, and so we’ve been put in a box year after year of conforming and taking a revenue hit, or not conforming and having, in some cases, a significantly more complicated tax calculation.”
Lawmakers decide against deductions
Facing a projected budget deficit, the Legislature on March 7 decided against the tuition deduction and the education expense deduction. That means those taxpayers still can claim the deductions on their federal returns, but not on their state returns. They are required to add back that deduction on the state form. Despite written instructions, some early filers, perhaps recalling their previous filing pattern, may not have added the deductions back, said Wald. They may have to amend their returns.
How many? “We’re hoping not very many,” said Wald. Revenue Department workers with the help of their computers are checking returns and can adjust mistakes for those two items, she said. Computer software vendors have been notified of the changes and adjusted their programs, said Wald. Tax practitioners, too, have been notified.
John McCarthy, a certified public accountant who practices in Roseville, said the late change “complicates it a little bit.” Professionals will be up to date, said McCarthy. “The ones I really care about are the ones who do their own returns… It could affect the refund you get back or you pay in more.”